EU carbon border mechanism hits EPCG as Montenegro stays tied to coal

The EU’s carbon border mechanism, introduced in early 2026, is already reshaping the economics of electricity exports from Montenegro—most visibly for the country’s state power utility EPCG. The impact has been immediate: EPCG posted losses of around €13 million in the first quarter, underscoring how quickly carbon-intensive generation can face new financial pressure once EU-linked rules tighten.

Coal dependence amplifies CBAM pressure on export earnings

CBAM effectively penalizes electricity produced from sources with high carbon intensity, placing additional strain on producers that still rely heavily on coal. The challenge is particularly acute in Montenegro because a large share of its electricity comes from the coal-fired thermal power plant Pljevlja. As a result, EPCG’s competitiveness in export markets is being reduced—not only through direct cost effects, but also because CBAM can indirectly lower achievable electricity prices compared with those available within the European Union.

Cost pass-through avoided—for now, but price risk remains

Despite these pressures, EPCG has so far avoided passing additional costs onto households. However, officials acknowledge that price increases remain possible if geopolitical tensions—especially in the Middle East—continue to disrupt energy markets further.

Sales strategy shifts away from EU exposure

To manage the new rule set, EPCG is prioritizing electricity sales within the Western Balkans, where CBAM rules do not apply. Exports to EU markets are limited to surplus volumes, reflecting an effort to protect revenues while minimizing exposure to penalties tied to carbon-intensive generation.

Regional price gaps and missing EU-aligned emissions trading add friction

Market conditions are already reflecting CBAM’s effect on export potential. Electricity prices in the region are between 20 and 70 euros per megawatt-hour lower than in the EU, which limits export revenues for producers selling into European markets.

The situation is further complicated by Montenegro’s lack of a national emissions trading system aligned with the EU ETS. With no domestic framework matching EU pricing signals, local producers bear the full cost burden. Local carbon prices are around €24 per ton, while EU levels remain significantly higher—creating additional competitive distortions for exporters.

Early 2026 performance holds up operationally—but uncertainty persists

Even under these constraints, EPCG managed to place all available surplus electricity on the market in early 2026. Sales totaled 486 GWh valued at €49.9 million in the first quarter, compared with 345 GWh worth €42.8 million a year earlier.

Production also rose due to favorable hydrological conditions: total output reached approximately 1,204 GWh, representing a strong year-on-year increase.

Modernization and renewables investment target long-term resilience

Still, uncertainty remains elevated because future financial performance will depend heavily on regional electricity prices and any adjustments to CBAM rules. EPCG expects continued pressure on export revenues tied to coal-based generation.

To adapt, it is advancing modernization efforts at TPP Pljevlja while accelerating a broader transition toward renewable energy sources. Planned investments of €800 million to €950 million by 2035 are intended to reduce exposure to carbon costs and improve long-term sustainability.